Lowe’s Companies (LOW) short, mcap=$115000m

LOW short pitch:
– One of the largest home improvement retailers in the US with 11% market share, behind 17% for $HD.
– Has been materially over-earning due to inflation (ticket +29% vs. pre-covid) and pull-forward of housing-related spend.
– Setup for 2023-24 EPS revisions is asymmetric as the impacts of slower housing turnover percolate and goods prices deflate.
– Attractive way to play goods deflation in a business with high operating leverage and with EPS revisions as high as 30-50%.

LOW valuation:
– Trades at 15.5x FY24 EPS on elevated earning guidance.
– Historically traded at 17x.
– Peer HD sits at 19x.
– EPS expected to be 24%-47% below guidance.

Exp. gain: 22%/49% to $167/$200 per share.

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